SEC News Digest

Issue 2013-45 March 8, 2013

Commission Announcements

Temporary Suspension of Trading in the Securities of Endeavor Power Corp.

The Securities and Exchange Commission (“Commission”) announced the temporary suspension, pursuant to Section 12(k) of the Securities Exchange Act of 1934 (the "Exchange Act"), of trading in the securities of Endeavor Power Corp. ("Endeavor Power"), of Cambridge, Massachusetts at 9:30 a.m. EST on March 8, 2013, and terminating at 11:59 p.m. EDT on March 21, 2013.

The Commission temporarily suspended trading in the securities of Endeavor Power because of questions that have been raised regarding the accuracy of assertions in Endeavor Power’s public filings and press releases relating to, among other things, patents.

The Commission cautions brokers, dealers, shareholders and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by this company.

Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule, he should not enter any quotation but immediately contact the staff in the Division of Trading and Markets, Office of Interpretation and Guidance, at (202) 551-5777. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, he should refrain from entering quotations relating to Endeavor Power’s securities until such time as he has familiarized himself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action.

If any broker, dealer or other person has any information which may relate to this matter, Matthew Solomon of the Securities and Exchange Commission should be telephoned at (202) 551-5949. (Rel. 34-69073)

Rules and Related Matters

SEC Grants Temporary Exemption Order

An order has been issued on an application filed by the self-regulatory organizations for a temporary exemption pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934 (Exchange Act) from the filing deadline specified in Rule 613(a)(1) of the Exchange Act. (Rel. 34-69060)

Enforcement Proceedings

In the Matter of Billy Wayne McClintock

The United States Securities and Exchange Commission (Commission) announced the issuance of an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Billy Wayne McClintock (McClintock). The Order finds that an order of permanent injunction was entered against McClintock by the United States District Court for the Northern District of Georgia on December 6, 2012, in Securities and Exchange Commission v. McClintock, et al., Civil Action Number 1:12-CV-4028-SCJ (N.D. Ga. Nov. 19, 2012). The Commission’s complaint against McClintock alleged that, since at least 2004 McClintock had been conducting a Prime Bank-type investment fraud involving the offer and sale of over $15 million of securities in an unregistered offering to more than 220 investors and prospective investors in Georgia and at least 20 other states. The securities were in the form of investments in a purportedly highly clandestine Trust based in Europe that purportedly had the power to create money through fractional banking and bank debentures. Investors allegedly loaned money to the Trust in exchange for 38% annual interest and were told they must follow the Trust’s strict rules of secrecy to participate in the investment. The complaint also alleges that McClintock knowingly or recklessly made material misrepresentations and omissions of fact to investors and prospective investors concerning, among other things, the expected returns, the use of investor funds, and investment risks, and engaged in conduct which operated as a fraud and deceit on investors. The Commission’s complaint further alleged violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Based on the above, the Order bars McClintock from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and bars him from participating in any offering of penny stock. McClintock consented to the issuance of the Order without admitting or denying any of the findings in the Order, except he admitted to the entry of the injunction. (Rel. 34-69065; File No. 3-15232)

Delinquent Filers’ Stock Registrations Revoked

The registrations of the registered securities of Lynx Acquisition, Inc., Narek Pharmaceuticals, Inc., North Shore Capital Advisors Corp., NPS Technologies Group, Inc., NX Networks, Inc., Nycal Corp., Scout Acquisition, Inc., and Strategic Defense Alliance Corp. have been revoked. Each had repeatedly failed to file required annual and quarterly reports with the Securities and Exchange Commission. Thus, each violated a crucial provision of the federal securities laws that requires public corporations to publicly disclose current, accurate financial information so that investors may make informed decisions. The revocations were ordered in an administrative proceeding before an administrative law judge. (Rel. 34-69074; File No. 3-15213)

In the Matter of JC Reed Advisory

The Securities and Exchange Commission (Commission) announced today that the Honorable William J. Haynes, Jr., United States District Judge for the Middle District of Tennessee, entered final judgments on Feb. 27, 2013 against J.C. Reed & Company (JC Parent), J.C. Reed Advisory Group (JC Advisory) and Barron A. Mathis (Mathis). The final judgment against JC Parent and JC Advisory held them liable for disgorgement of $11,000,000 and prejudgment interest of $3,910,003.07, for a total of $14,910,003.07. The final judgment against Mathis restrained and enjoined him from future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Mathis also was held liable for disgorgement of $11,000,000 and prejudgment interest of $4,944,175.39, for a total of $15,944,175.39.

The Commission’s Complaint, filed on November 18, 2008, alleged that, at various times from no later than 2005 through at least September 2008, JC Parent, JC Advisory, John C. Reed (Reed), the founder of JC Parent and JC Advisory, and Mathis facilitated the offer and sale of more than $11 million of JC Parent stock in unregistered transactions to over 100 investors in several states. According to the Complaint, JC Parent, JC Advisory, and Reed misrepresented and omitted material facts to investors relating to the value of the investors’ stock, JC Parent’s revenues and profitability, the use of key man life insurance proceeds for redemptions of Reed’s JC Parent stock, and undisclosed sales commissions. The Complaint also alleges that Mathis promoted JC Parent stock to advisory clients and misrepresented material facts to investors about undisclosed sales commissions. In addition, the Complaint alleges that JC Advisory used JC Parent’s inflated stock values to falsely report assets under management as JC Advisory’s basis for registration with the Commission and on reports filed with the Commission. [SEC v. J.C. Reed & Company, Inc., J.C. Reed Advisory Group, LLC, Barron A. Mathis, and Estate of John C. Reed, Lana L. Reed, Executor, Case No. 3:08-CV-1112 (M.D. Tn.)] (LR-22633)

In the Matter of Prism Financial Services, LLC.

The Securities and Exchange Commission (Commission) announced today that the Honorable Thomas W. Thrash, Jr., United States District Judge for the Northern District of Georgia, entered a final judgment on Feb. 26, 2013, permanently enjoining Gerald D. Kegley (Kegley). The final judgment restrained and enjoined Kegley from future violations of Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 promulgated thereunder. The order also restrained and enjoined Kegely from aiding and abetting future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Kegley was ordered to pay disgorgement of $99,940, prejudgment interest of $9,851.93, and a civil penalty of $99,940, for a total of $209,731.92.

The Commission’s complaint, filed on May 8, 2012, alleged that from at least April 8, 2010 through at least Aug. 20, 2010, the defendants were directly responsible for introducing six individuals, who invested $1.95 million, to the fraudulent scheme. The complaint alleges that in furtherance of the scheme, the defendants forwarded misrepresentations made by others to investors. These misrepresentations included: 1) that investors could draw upon bank issued guarantees worth millions of dollars without having to repay the withdrawn funds; and 2) that investor funds would be held in escrow until the bank guarantees were issued. The complaint alleges that defendants knew or were reckless in not knowing that both of these representations were false because no such bank guarantees existed and investor funds were misappropriated immediately upon receipt.

Defendants also misrepresented that they would be paid commissions only once the investor received the bank guarantee. In fact, defendants were paid commissions relatively soon after the investors transferred the money. Defendants further told investors that they had previously worked on a successful bank guarantee program. Defendants, however, had actually reported this purportedly successful bank guarantee program to the Federal Bureau of Investigation because they believed it was a fraud. [SEC v. Gerald D. Kegley, et al., Case No. 1:12-CV-1605 (N.D. Ga.)] (LR-22634)

SEC v. M. Mark McAdams and R. Dane Freeman

The Securities and Exchange Commission (Commission) announced today that the Honorable Terry L. Wooten, United States District Judge for the District of South Carolina, entered final judgments permanently enjoining M. Mark McAdams (McAdams) and R. Dane Freeman (Freeman). The final judgments restrained and enjoined McAdams and Freeman from future violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The final judgments also held McAdams and Freeman jointly and severally liable for disgorgement of $3,500,000 and prejudgment interest of $787,794.28. The final judgments also impose a civil penalty of $120,000 each on both McAdams and Freeman.

The Complaint, filed on March 18, 2010, alleged fraud against McAdams and Freeman in connection with sales of securities interests in Global Holdings, a limited liability company organized by McAdams. Approximately $3.5 million was raised from investors during the first nine months of 2008. The Complaint alleged that McAdams and Freeman told investors orally and in writing that Global Holdings was “in the business of locating and securing high return investment opportunities for investors on international trading platforms.” Most of the Global Holdings’ investors executed a joint venture agreement that was prepared by McAdams and signed by either McAdams or Freeman. These joint venture agreements represented that Global Holdings would utilize those funds “for the purpose of buying and selling Standard and Poor’s AAA or AA rated bonds and/or Medium Term Notes” on an “overseas trading platform.” Some of the joint venture agreements stated that investors who invested $20,000 would receive $1,000,000 after 60 days, a return of 4,900%. At least one joint venture agreement stated that an investor’s $500,000 would grow to $1,500,000 after 60 days, for a 200% rate of return. Most investors, if not all of them, never received either profits or a return of their principal. Instead, over $500,000 in investor funds were transferred to accounts controlled by Freeman and his family. [SECv. M. Mark McAdams and R. Dane Freeman, Civil Action No. 4:10-CV-00701-TLW (D.S.C.)] (LR-22635)

Final Judgment Against Robert Crane

The Commission announced that on March 1, 2013, the Honorable Claude M. Hilton, United States District Court Judge for the Eastern District of Virginia, entered a final judgment by consent against Robert C. Crane. The final Judgment permanently enjoins Crane from future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and permanently bars Crane from participating in an offering of penny stock.

On February 26, 2013, the Securities and Exchange Commission filed its complaint against Crane alleging that he manipulated the market in two penny stocks—Argentex Mining Corporation and ERHC Energy Inc.—by executing six wash sales in June 2010 to create the false appearance of an active and liquid market for those securities. Crane placed his orders through the Internet for trades in three accounts at two brokerage firms. His trades resulted in no change of beneficial ownership in the stock he already owned. The Commission did not seek a penalty against Crane based on his sworn representations concerning his financial condition. [SEC v. Crane, Civil Action No. Case 1:13-cv-00261-CMH-IDDVAED (E.D. Va.)] (LR-22636)

SEC Obtains Final Judgment Against Scott Kupersmith

The Securities and Exchange Commission announced today that on March 6, 2013, the Honorable Katharine S. Hayden of the United States District Court for the District of New Jersey entered a final judgment against defendant Scott I. Kupersmith. The final judgment imposes on Kupersmith a permanent injunction against future violations of certain antifraud provisions of the federal securities laws and orders that his obligation to pay disgorgement of $640,000 and prejudgment interest thereon be deemed satisfied provided that the combined restitution orders in the related criminal federal and state proceedings against him exceeded such amount.

In its Complaint, the Commission alleged that Kupersmith orchestrated a “free-riding” scheme of selling stocks before paying for them during 2009 and 2010 that allowed him to reap approximately $640,000 in illicit profits, while causing approximately $2 million in losses to the victim broker-dealers that he used to operate the scheme. According to the Complaint, Kupersmith interchangeably bought and sold the same quantity of the same stock in different brokerage accounts with the intention of profiting on swings up or down in the stock price. Unbeknownst to broker-dealers, Kupersmith did not have sufficient securities or cash on hand to cover the trades, and instead used proceeds from stock sales in one brokerage account to pay for the purchase of the same stock in another brokerage account. The scheme unraveled when Kupersmith failed to deliver shares to settle or cover long sales.

The final judgment permanently enjoins Kupersmith from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 10b-21 thereunder. In addition, the final judgment orders that Kupersmith’s obligation to pay disgorgement of $640,000 and prejudgment interest thereon be deemed satisfied provided that he was ordered to pay restitution in excess of such amount on a combined basis in the parallel criminal proceedings against him. Kupersmith consented to the entry of the final judgment.

On May 29, 2012, Kupersmith pleaded guilty to federal criminal charges for securities fraud in a parallel criminal action before the District Court for the District of New Jersey in United States v. Kupersmith, 2:12-cr-00375 (D.N.J.). On March 4, 2012, Kupersmith was sentenced to 33 months in prison followed by three years of supervised release and ordered to pay $1,796,151 in restitution.

In a related state criminal action, on May 7, 2012, Kupersmith pleaded guilty to criminal charges, including securities fraud under New York penal law, before the Supreme Court of the State of New York for the County of New York in State of New York v. Scott Kupersmith et al., Ind. No. 04360/2011 (Sup. Ct. N.Y. County). On March 5, 2013, Kupersmith was sentenced to a one-to-three year state prison term to run concurrently with the federal prison sentence and ordered to pay $684,703 in restitution, including a five-percent administration fee.

The Commission acknowledges the assistance of the U.S. Attorney's Office for the District of New Jersey, Federal Bureau of Investigation, and Manhattan District Attorney's Office.

SEC v. Brian R. Reiss

On March 7, 2013, the Securities and Exchange Commission charged a California-based lawyer who has been fraudulently churning out baseless legal opinion letters for penny stocks through his website without researching and evaluating the individual stock offerings.

Legal opinion letters are issued to transfer agents on behalf of holders of restricted stock seeking to sell the stock freely in the public markets. Transfer agents typically require a lawyer’s opinion explaining the legal basis for lifting the restriction on the stock and allowing it to be freely traded.

The SEC alleges that Brian Reiss of Huntington Beach, Calif., set up 144letters.com to promote his legal opinion letter business and advertise “volume discount” rates while noting “penny stocks not a problem.” Reiss steered potential customers to his website by making bids on search terms through Google’s AdWords, and then relied on a computer-generated template to draft his opinion letters within minutes absent any true analysis of the facts behind each stock offering. The letters from Reiss ultimately made false and misleading statements and facilitated the sale of securities in violation of the registration provisions of the federal securities laws.

According to the SEC’s complaint filed in federal court in Manhattan, Reiss began issuing the fraudulent legal opinion letters in 2008. He advertised a $285 rate for each letter and a “volume discount” rate of $195 per letter. Reiss routinely made inaccurate statements bearing on whether the restriction should be lifted, and failed to conduct even a token inquiry into the underlying facts. He knew or recklessly disregarded the fact that shareholders seeking his opinion letters intended to sell their stock in the public markets, and that transfer agents would rely on his opinion letters to issue stock certificates without restrictive legends.

According to the SEC’s complaint, the false and misleading statements that Reiss made in opinion letters induced transfer agents for several public companies to remove the restrictive legends from the stock certificates and permit the sale of free-trading shares to the public. Reiss provided the opinion letters to transfer agents who required assurances in the form of a legal opinion that the transactions qualified for an exemption from the registration requirements under the federal securities laws. With Reiss’s baseless assurances, the transfer agents issued stock certificates without restrictive legends and enabled the stock to be traded freely.

The SEC’s complaint charges Reiss with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.

The SEC’s complaint seeks a final judgment ordering Reiss to disgorge his ill-gotten gains, plus prejudgment interest and pay financial penalties. The complaint seeks orders barring Reiss from participating in the offering of any penny stock pursuant to Section 20(g) of the Securities Act. The complaint also seeks permanent injunctions – including an injunction prohibiting Reiss from providing legal services in connection with an unregistered offer or sale of securities. [SEC v. Brian R. Reiss, Civil Action No. 13-Civ-1537] (LR-22638)

Joint Industry Plan Releases

Notice of Filing of the Third Amendment to the National Market System Plan to Address Extraordinary Market Volatility

SELF-REGULATORY ORGANIZATIONS

Immediate Effectiveness of Proposed Rule Changes

A proposed rule change filed by the EDGX Exchange, Inc. (SR-EDGX-2013-10) relating to amendments to the EDGX Exchange, Inc. Fee Schedule has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69042)

A proposed rule change filed by the EDGA Exchange, Inc. (SR-EDGA-2013-09) relating to amendments to the EDGA Exchange, Inc. Fee Schedule has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69043)

A proposed rule change filed by NASDAQ OMX BX, Inc. to modify BX’s fee schedule governing order routing (SR-BX-2013-019) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69053)

A proposed rule change (SR-BOX-2013-09) filed by BOX Options Exchange LLC to amend the Fee Schedule for trading on BOX has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69054)

A proposed rule change filed by NYSE Arca, Inc. amending the NYSE Arca Inc. Fee Schedule to increase the Gross FOCUS Fee (SR-NYSEArca-2013-23) has become effective pursuant to Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69059)

Approval of Proposed Rule Change

The Commission granted approval of a proposed rule change (SR-NYSEArca-2013-01) submitted by NYSE Arca, Inc. pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 and Rule 19b-4 thereunder relating to listing and trading of the Newfleet Multi-Sector Income ETF under NYSE Arca Equities Rule 8.600. Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69061)

Designation of Longer Period for Commission Action on Proposed Rule Change

The Commission has designated a longer period for Commission action under Section 19(b)(2) of the Securities Exchange Act of 1934 on a proposed rule change (SR-FINRA-2013-002) filed by Financial Industry Regulatory Authority, Inc. to Amend FINRA Rule 2267 (Investor Education and Protection). Publication is expected in the Federal Register during the week of March 11, 2013. (Rel. 34-69063)

SECURITIES ACT REGISTRATIONS

The following registration statements have been filed with the SEC under the Securities Act of 1933. The reported information appears as follows: Form, Name, Address and Phone Number (if available) of the issuer of the security; Title and the number and/or face amount of the securities being offered; Name of the managing underwriter or depositor (if applicable); File number and date filed; Assigned Branch; and a designation if the statement is a New Issue.

Amendments to the Registrant's Code of Ethics, or Waiver of a Provision of the Code of Ethics

5.06

Change in Shell Company Status

6.01

ABS Informational and Computational Material.

6.02

Change of Servicer or Trustee.

6.03

Change in Credit Enhancement or Other External Support.

6.04

Failure to Make a Required Distribution.

6.05

Securities Act Updating Disclosure.

7.01

Regulation FD Disclosure

8.01

Other Events

9.01

Financial Statements and Exhibits

8-K reports may be viewed in person in the Commission's Public Reference Branch at 100 F Street, N.E., Washington, D.C. To obtain paper copies, please refer to information on the Commission's Web site at http://www.sec.gov/answers/publicdocs.htm. In most cases, you can view and download this information by using the search function located at http://www.sec.gov/edgar/searchedgar/companysearch.html.